Financial markets, politicians and even some news­papers got ahead of themselves by pencilling in a rate cut yesterday. However, the decision by the Reserve Bank of Australia to keep rates on hold makes sense given recent developments in both the Australian economy and internationally.

The RBA needs to maintain a disciplined low-inflation ­policy to help stabilise the economy as it restructures around the China boom and corrects imbalances that built up in the years before the global financial crisis. The decision to keep rates unchanged leaves policymakers with scope to act if the economy is hit by something really bad from abroad or, as the RBA puts it, if “demand conditions weaken materially”.

The pessimism about the outlook for the global economy at the RBA’s last board meeting in December has dissipated to some extent. The euro zone’s sovereign debt woes are still weighing on Europe’s economy, but while a market crisis could easily return, policymakers there have made overdue progress, and plans to introduce budget rules across the continent are to be welcomed. As we editorialised yesterday, the United States economy is also showing encouraging signs of life: recent data shows companies are beginning to employ more workers, and manufacturing is starting to improve.

The RBA noted that economic growth in China, Australia’s most important trading partner, was “quite robust”. It sees the economy growing at close to trend, at a bit above 3 per cent; underlying inflation is contained within the 2 to 3 per cent target and retail lending rates are about at their historical average.

Of course, much of the economy feels much weaker than average growth. The mining boom is lifting living standards through the high dollar, but the stronger currency means other sectors, such as manufacturing and tourism, are being squeezed or forced to adjust to post-crisis deleveraging. The digital economy is also forcing adjustments on sectors including retail and the traditional media.

Many of the traditional industries under pressure are those with the strongest political voices. These will try to influence the RBA to cut the price of money, bring down the dollar and force the inevitable adjustments onto others. Politicians are responding weakly to this pressure, as car and steel plants struggle to compete with the high dollar.

Treasurer Wayne Swan has been beating up on the banks, accusing them of making excessive profits and demanding they pass on any RBA interest rate cuts even as higher funding costs hit their margins. Mr Swan should be spending less time “jaw-boning” the banks and more time relieving business of unnecessary costs and ensuring the federal budget in May contains substantial spending cuts to fix a chronic structural deficit. This would give the RBA more room to take the load off interest rates and the exchange rate if the economy weakens.